38 Studios’ critics grow after missed fee payment

'It tells the outside world that we are amateurs.'

By Patrick Anderson PBN Staff Writer

Swipely CEO Angus Davis was one of many skeptics of Rhode Island’s $75 million loan guarantee to former Red Sox pitcher Curt Schilling’s 38 Studios LLC video game startup two years ago. Now he has even more company in the business community urging state leaders not to sink any more money into the embattled Providence firm since it defaulted on part of its public-financing deal.

Swipely CEO Angus Davis was one of many skeptics of Rhode Island’s $75 million loan guarantee to former Red Sox pitcher Curt Schilling’s 38 Studios LLC video game startup two years ago. Now he has even more company in the business community urging state leaders not to sink any more money into the embattled Providence firm since it defaulted on part of its public-financing deal.

“Why Rhode Island is being held hostage is beyond me,” Davis said last week after Gov. Lincoln D. Chafee confirmed that 38 Studios had failed to make a $1.125 million payment and asked for additional state assistance. “The state does not need to be making $100 million venture-capital bets on companies in an industry it knows nothing about and has no one on the board of directors.”

On May 17, Chafee said 38 Studios had asked for instructions on wiring its missed payment to the state, but by late afternoon on that day no payment had been received, said Chafee spokeswoman Christine Hunsinger.

Exactly what kind of additional state help 38 Studios asked for has not been disclosed, but Davis, who urged rating-agency Moody’s to consider 38 Studios’ bonds below junk status in 2010, said whatever the company is looking for should come from private investors.

Now that 38 Studios’ default has helped claim the job of the loan guarantee’s chief architect – the now-former R.I. Economic Development Corp. Executive Director Keith W. Stokes – many are asking what it will mean for the state’s business climate going forward.

“This is tantamount to someone who robbed a bank and discovered there was money still left at the bank coming back for it,” said Edward M. Mazze, professor of business administration at the University of Rhode Island. “I think it is going to tell the outside world that in Rhode Island we are a bunch of amateurs.”

After opening 38 Studios’ books to Chafee and EDC officials last week, a stone-faced Schilling rushed by reporters and avoided questions about why his company needed more government help or why it was unable to pay the loan-guarantee fee agreed to less than two years ago.

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